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From Russia Without Much Love

10 April 2018 by lberuti

Even though the magnitude of the moves of credit indices was limited, the tone was positive throughout the session as European investors decided to ignore the late US weakness when they began their day and focused instead on China’s Premier’s speech pointing to the possible reduction of some tariffs. But today was all about Russia actually. It was under severe pressure as the unprecedented nature of the sanctions announced recently reverberated through the market. The catalyst for the aggressive move wider of Russia’s 5-year risk premium was the US President’s threat to respond “forcefully” to a chemical attack in Syria. It sent the Russian ruble tumbling after multiple reports of military activity in the Mediterranean. While equity markets were having a party, the 2047 bond that Russia tapped recently at par – the deal size was increased by $2.5Bln to $7Bln three weeks ago - was down 4pts and traded as low as 93.5% before settling at 95% of par. Russia’s 5-year CDS traded up 160bps - or 20bps wider on the day – before closing at 150bps. Investors’ concerns were also obvious as they flattened Russia’s CDS curve, moving the short-dated risk premia even faster.